FRM Part II · FRM Exam Part II · Contingency Funding Planning
A bank's treasurer is reviewing lessons from past liquidity crises when updating the contingency funding plan (CFP). Which feature is most consistent with regulatory guidance on an effective CFP?
An effective contingency funding plan assigns clear crisis roles, uses early warning indicators to trigger escalation, and contains action plans that are tested and updated regularly. Reliance on one historical scenario, central bank support as a primary source, or parent-only coverage does not meet supervisory expectations.
- AA single set of stress assumptions based on the bank's worst historical outflow, reviewed only when a crisis occurs
- BA set of clearly assigned crisis-management roles, early warning indicators that trigger escalation, and action plans tested and updated regularlyCorrect
- CA plan that relies on central bank facilities as the primary source of funding in all stress scenarios
- DA plan limited to the parent entity's funding needs, since subsidiaries are expected to manage themselves
Explanation
Supervisory guidance expects a CFP to define governance and responsibilities, use early warning indicators to trigger escalation, and contain actionable measures that are tested and updated. A single historical scenario reviewed only after a crisis is too narrow and reactive. Relying on central bank facilities as the primary source is not prudent, and ignoring subsidiaries leaves entity-level gaps.
Did you get it right without looking?
One question tells you little. A timed set on Contingency Funding Planning shows your real accuracy, how long you take and where you lose marks.
More Contingency Funding Planning questions
- A bank's stress test shows survival of 45 days under a combined scenario, versus a board-approved minimum survival horizon of 60 days. Daily…
- A bank's CFP relies on a committed credit line from a correspondent bank as a contingent source. Which concern is most important when assess…
- A bank's CFP relies on a committed credit line from another bank as a contingent funding source. Which concern is most important when assess…
- Which communication approach is most consistent with good CFP crisis management procedures during a liquidity stress?
- Why did regulators after the crisis emphasize that a bank's CFP should be integrated with its recovery planning and tested regularly?
- A bank's CFP defines three stages: Stage 1 (monitoring) when the 30-day net outflow ratio exceeds 60% of its limit, Stage 2 (heightened aler…